Termination and redundancy payments and Centrelink

Welfare Rights Centre

A person leaving a job could depart with leave payments or redundancy pay. Centrelink will treat those payments from your employer as income for the length of time covered by those payments. During that period Centrelink payments may be cut off or reduced. This is called an Income Maintenance Period (IMP).

This guide has information about the IMP and practical advice to help someone who is in financial hardship because of it.

What Centrelink payments are affected by the income maintenance period?

The IMP applies to the main Centrelink payments for people of working age, including Newstart allowance, Parenting Payment and the Disability Support Pension. It also applies to student payments.

How is the IMP calculated?

An IMP is imposed when a person receives a payment “connected with a termination”. This includes unpaid leave, redundancy pay, gratuities and payments in lieu of notice.

The period usually starts from the day the payment is made. Payments that relate to specified periods lead to an equivalent IMP (for example payment of four weeks’ annual leave will mean a four-week IMP). Payments that do not relate to specified periods (such as a redundancy or gratuity payment) will be divided by the person’s ordinary weekly income at the time of termination to give a number of weeks. These periods are added together to give the total IMP. For example:

Jane’s employment is terminated after three years when she is earning $1000 per week. She receives a termination payment of $25,000 comprising:

four weeks annual leave payment (IMP: four weeks)

payment of two weeks for every year of service (IMP: six weeks)

gratuity payment of $15,000 (IMP: 15000/1000 = 15 weeks)

Total IMP = 25 weeks

Does the person have to serve a waiting period as well?

When a person claims a Centrelink payment they might also be subject to a waiting period such as the liquid assets waiting period which is applied based on a person’s savings. These waiting periods are generally served at the same time as the IMP, not added on to the end.

Can the IMP be reduced?

IMPs may be ended early or waived if the person is in severe financial hardship as a result of unavoidable or reasonable expenditure.

To be in “severe financial hardship” a person must have exhausted nearly all savings and any other liquid assets. A single person, for example, must have less than the maximum fortnightly amount of Newstart Allowance, which is a little over $500 at the moment.

Some specific expenses are recognised by the law as unavoidable or reasonable (for example funeral expenses or essential medical expenses or car repairs), and some other expenses may be considered reasonable or unavoidable in certain circumstances. The amount allowed for a person’s general costs of living (for example rent, petrol, power bills) for any period is capped at the amount of Newstart Allowance the individual would have received in that period. This is a low amount, usually far less than most people’s actual cost of living.

The bulk of the individual’s expenditure must have been unavoidable or reasonable if the IMP is to be waived.

What to do if you receive a termination payment

A person who has just received a termination payment should claim a payment from Centrelink, and when doing so will be informed of the length of the IMP. This information will help in drawing up a budget so that the individual can support himself or herself until the end of that period.

A person who gets into financial hardship before the end of the IMP should go to Centrelink and do two things:

Request a waiver of the IMP. The person will need to give as much evidence as possible of how they spent the termination payments and why the expenditure was reasonable or unavoidable. For example, if the person paid all of an overdue power bill, evidence should be provided that the power company was threatening disconnection.

Claim special benefit. Special benefit is a last-resort payment for people who cannot be paid any other Centrelink payment and it can sometimes be paid during an IMP. It is subject to different rules, which means that you could be paid it even if Centrelink says your IMP cannot be waived.

If Centrelink does not accept either of these claims the person has a free right of appeal to a Centrelink-authorised review officer. Appeals should be lodged within 13 weeks.

Please also ring us at the Welfare Rights Centre on (02) 9211 5300.

Welfare Rights Centre helps worker made redundant

Tom received a redundancy payment of about $70,000 in March 2013 and was not allowed to receive Centrelink payments until May 2014.

Tom was already in significant debt in March 2013 when he received the redundancy payment and needed to spend the money. His paid leave had run out in September 2012 and he had had no income from work or Centrelink during the six months prior to receiving the redundancy.

He had separated from his partner at about the same time his paid leave ran out. His ex-partner and his children were still living in the house and the family car had been repossessed, making it difficult to get the children to school. He lived in a country town and it was problematic to get around without a car.

He used the redundancy to pay off some of his credit card and Telstra debts, the balance on a computer for his children, a car for his ex-partner to get to work and take the children to school, and a car for himself to enable him to obtain work doing odd jobs. He also spent a large amount paying rent arrears on the property occupied by his children and ex-partner. The arrears accrued while he was living there (he had lived there for 15 years). His partner had paid the rent since he moved out, but the lease was still in his name, his children were still living there and he felt responsible for the arrears.

When he claimed the Newstart Allowance at Centrelink he discovered that the redundancy meant that an IMP precluded him from receiving payments until May 14, 2014. The length of an IMP can be reduced if a person is in severe financial hardship because of reasonable or unavoidable expenditure — but Centrelink decided Tom’s expenditure was not reasonable.

The Welfare Rights Centre (NSW) represented Tom at the Social Security Appeals Tribunal. We argued that the reasonableness of the expenditure has to be considered in the context of his personal circumstances. The Tribunal decided that most of his expenditure (including paying pre-existing debts, car costs and rental arrears) were reasonable in his particular circumstances and waived the imposition of the IMP.